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Inequality and Trust

This paper reviews the literature on economic inequality and trust. Cross-country studies, within-country studies, and experiments all suggest that economic inequality exerts a negative influence on trust. Four mechanisms are proposed to explain the negative relationship: social ties (or networks), inference on social relationships (to see inequality as a signal of untrustworthy behavior), conflicts over resources, and opportunity cost of time. Social ties receive the strongest empirical support, but there is also some evidence in favor of inference on social relationships. Conflicts over resources and opportunity cost of time are contradicted by important pieces of evidence.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 715.

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Length: 21 pages
Date of creation: 21 Aug 2007
Date of revision:
Publication status: Published in Handbook of Social Capital, Svendsen, Gert, Svendsen, Gunnar (eds.), 2009, chapter 19, Edward Elgar.
Handle: RePEc:hhs:iuiwop:0715
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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  1. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  2. Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  3. Andrew Leigh, 2006. "Does Equality Lead to Fraternity?," CEPR Discussion Papers 513, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  4. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
  5. Alberto Alesina & Eliana La Ferrara, . "Participation in Heterogeneous Communities," Working Papers 151, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Karlan, Dean & Mobius, Markus & Rosenblat, Tanya & Szeidl, Adam, 2009. "Trust and Social Collateral," Staff General Research Papers 13026, Iowa State University, Department of Economics.
  7. Anthony B. Atkinson & Andrea Brandolini, 2000. "Promise and Pitfalls in the Use of 'Secondary' Data-Sets: Income Inequality in OECD Countries," Temi di discussione (Economic working papers) 379, Bank of Italy, Economic Research and International Relations Area.
  8. Gustavsson, Magnus & Jordahl, Henrik, 2006. "Inequality and Trust in Sweden: Some Inequalities are More Harmful than Others," Ratio Working Papers 106, The Ratio Institute.
  9. Stephen Leider & Markus M. Möbius & Tanya Rosenblat & Quoc-Anh Do, 2007. "Directed Altruism and Enforced Reciprocity in Social Networks: How Much is A Friend Worth?," NBER Working Papers 13135, National Bureau of Economic Research, Inc.
  10. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  11. Hilde Coffé & Benny Geys, 2006. "Community Heterogeneity: A Burden for the Creation of Social Capital?," Social Science Quarterly, Southwestern Social Science Association, vol. 87(s1), pages 1053-1072.
  12. Andrew Leigh, 2006. "Trust, Inequality, and Ethnic Heterogeneity," CEPR Discussion Papers 511, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  13. Lisa Anderson & Jennifer Mellor & Jeffrey Milyo, 2006. "Induced heterogeneity in trust experiments," Experimental Economics, Springer, vol. 9(3), pages 223-235, September.
  14. repec:ebl:ecbull:v:26:y:2006:i:4:p:1-20 is not listed on IDEAS
  15. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  16. Alesina, Alberto F & La Ferrara, Eliana, 2000. "Who Trusts Others?," CEPR Discussion Papers 2646, C.E.P.R. Discussion Papers.
  17. Berggren, Niclas & Elinder, Mikael & Jordahl, Henrik, 2007. "Trust and Growth: A Shaky Relationship," Working Paper Series 705, Research Institute of Industrial Economics.
  18. Morgan Kelly, 2000. "Inequality And Crime," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 530-539, November.
  19. repec:ucn:oapubs:10197/523 is not listed on IDEAS
  20. Johansson-Stenman, Olof, 2008. "Who are the trustworthy, we think?," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 456-465, December.
  21. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
  22. Niclas Berggren & Henrik Jordahl, 2006. "Free to Trust: Economic Freedom and Social Capital," Kyklos, Wiley Blackwell, vol. 59(2), pages 141-169, 05.
  23. La Ferrara, Eliana & Alesina, Alberto, 2000. "Participation in Heterogeneous Communities," Scholarly Articles 4551796, Harvard University Department of Economics.
  24. Justina A.V. Fischer & Benno Torgler, 2006. "The Effect of Relative Income Position on Social Capital," Economics Bulletin, AccessEcon, vol. 26(4), pages 1-20.
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